Liquidity Events – Top Three Blunders Of Business Sellers

James Miller,
Contributing Editor & Research Analyst,
Wealth Solutions Report

Inaugural Column On How HNW Financial Advisors Can Partner With Other Advisory Professionals To Support Owners Of Successful Businesses Before, During And After Liquidity Events

Market volatility, supply chain disruptions and geopolitical risks all continue to drive economic uncertainty that wealth management firms and their financial advisors need to factor into the guidance they provide clients.

But in an economic landscape characterized by dramatic changes, some things remain the same. This includes the central role that privately owned businesses play in the United States – And the need for the owners of such businesses to pursue a liquidity event in the form of a sale of their companies, frequently as part of the aging process.

While a successful sale of a private business sounds like a great thing for the owner, the devil is very much in the details.

Beware Of These Three Mistakes

Indeed, the net financial benefits to owners of privately held businesses from a liquidity event can be extremely variable, and it all depends on the continuum of planning and execution that must happen before, during and after any such transaction.

That’s why WSR is pleased to launch Liquidity Events – Our inaugural column on how financial advisors can think about aligning wealth, tax, legal and estate strategies to maximize the ability of private business owner clients to achieve the full sweep of their goals when selling their companies.

Achieve every target

For this issue, we spoke about the top three mistakes that happen when owners of successful, privately held businesses sell their enterprises.

We’re pleased to share insights on this topic from Donna Thrane, Senior Director of Choreo, LLP, an independent RIA with over $11.8 billion in assets under management and more than 60 financial advisors across the country.

And for a legal expert’s point of view, we also connected with Jaclyn Vary, Vice Chair of Estate Planning and Business Success Practices at Calfee, Halter & Griswold LLP.

Wealth Manager’s Perspective: Donna Thrane, Senior Director, Choreo LLP

Donna Thrane, Senior Director,
Choreo LLP

From a wealth management perspective there are three key mistakes that can happen.

First, many business owners are so focused on operating their company and following a corporate financial plan that they forget to hire an advisor to create a personal financial plan until a liquidity event presents itself.

By getting a financial advisor involved sooner, an owner can set post-transaction lifestyle goals, optimize transaction results after income and wealth transfer taxes and after-deal expenses, and measure what does this all mean from a personal cash flow and balance sheet perspective.

Adapt as you go

The second frequent mistake is not making changes and adjustments to the plan before, during and after the transaction. Financial plans should adapt to changes in the owner’s life. A comprehensive plan should incorporate a view from one-year post-transaction as well as 20 years. Any wealth transfer planning should also consider short- and long-term perspectives, consequences and various possible outcomes.

Where will you move post-liquidity?

And third, business owners may overlook post-liquidity residency plans. There are tax implications that need to be considered if a change in residency is being considered. Being mindful of not only federal income taxes but also state income tax considerations in a business transaction are very important. There are ways to maximize after-tax proceeds at the time of sale if relocation is desired.

Legal Expert’s Perspective: Jaclyn Vary, Vice Chair of Estate Planning and Business Success Practices at Calfee, Halter & Griswold LLP

Jaclyn Vary, Vice Chair of Estate Planning and Business Success Practices,
Calfee, Halter & Griswold LLP

First, it’s never too early to involve a tax planner or estate attorney, but owners often work with one too late in the process. The best time to work with a tax planner is when you’re exploring the idea of a sale so you can identify any advantageous transfers before the transaction. Timing does matter as some estate planning techniques need a period of time between the estate planning transaction and the contemplated business sale.

Second, not knowing your entity’s tax status and tax basis. This tax information can provide guidance on how much you will net from the sale of your business and your resulting tax obligations. Your tax basis will adjust based on multiple factors such as depreciation, capital improvements and reinvested dividends, so it’s important to always have an idea of your basis.

Know the value of your business

Finally, it seems intuitive to know the value of your business, but not every owner is willing to pay for an appraisal for estate planning purposes. The valuation of a closely held business often includes a discount for lack of marketability and/or control.

Owners may be able to transfer significant wealth at a discounted value – But only if they are willing to obtain a qualified appraisal.

James Miller, Contributing Editor & Research Analyst at Wealth Solutions Report, can be reached at

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